How lower CRA charges will impact your retirement fund

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NSDL e-Governance Infrastructure Ltd (NSDL eGov) is currently the sole central record-keeping agency (CRA) of the National Pension System (NPS). From 1 April, the charges that you pay to it will get reduced. This reduction is probably due to the competitive pressures that NSDL e-Gov would face, when the second CRA starts operations.

In June 2016, Pension Fund Regulatory and Development Authority (PFRDA) appointed Karvy Computershare Pvt. Ltd as the second CRA of NPS. It is expected to begin operations on 15 February.With the reduction in CRA charges, NPS will pay less to NSDL e-Gov. But even with reduced charges, NSDL e-Gov charges more than Karvy would. However, before we look at costs and how they impact your money in the long term, let’s look at CRAs.

Functions of a CRA

In the architecture of NPS, the CRA has a crucial role. Other than being a repository of data, a CRA is responsible for administration and customer service functions. It also acts as the operational interface between different entities of the NPS, such as: pension fund managers, trustee banks and points of presence (PoPs) who distribute NPS. So, when you open your account, either online or through a PoP, the CRA captures your data and issues you a Permanent Retirement Account Number (PRAN). Your contributions go to the trustee bank, but it is the CRA’s job to tell the bank about your chosen pension fund manager, and also to tell the pension fund manager where to invest your money.

Charges

For its services, the CRA charges you under three cost heads: one-time account opening fee, annual maintenance cost and charge per transaction.

NCRA (the NSDL-CRA) currently charges a one-time account-opening fee of Rs50. Its annual maintenance cost is Rs190 whereas the cost per transaction is Rs4. From the next financial year, NCRA will charge less, so the one-time fee will be Rs40, the annual maintenance cost Rs95 and the per transaction cost will be Rs3.75. This is not the first time that NCRA has reduced costs. Over time, the annual maintenance costs have come down from Rs350 and Rs280, whereas the transaction charge has come down from Rs10 to Rs4 and would reduce further from April. But even then, NSDL continues to be the more expensive CRA. KCRA’s (Karvy-CRA) account opening charge is Rs39.36, the annual charge is Rs57.63 and transaction charge is Rs3.36.

Impact on your money

Given that these are low fixed costs, the reduction of CRA’s charges will not impact your long-term investments significantly. However, the fact that competition will put pressure on costs and drive them lower, is a good thing. Further, as a result of the competition, expect service levels to improve and that should also be the deciding factor in choosing the CRA.